Posts Tagged ‘taxes’

Numberscruncher: Trickling Down and Crowding Out

Shrewd Investor and Nasty Man

Shrewd Investor and Nasty Man

Given the massive Federal deficit, it’s a sure bet that taxes are going up sooner rather than later. Before the Teabaggaz start posting, I think we can all agree that cutting taxes while starting a war is a bad idea. Stuff costs money, whether we’re talking about body armor for our warfighters in Afghanistan or Under Armour shirts. But the problem is what to do about it, because we have to fund our deficit somehow. However, we also have a really fragile economy. If the government raises taxes, will it crowd out the investment and spending needed to create jobs?

The idea behind cutting taxes in the Reagan era was that if less money went to taxes, more would be used for private sector investing, and that the private-sector investing would generate so much economic growth that the loss in revenue from the tax cut would be short-lived. Eventually the economy would expand so much that more taxes would come in at the lower rate because of the larger base. Private-sector investing did increase; the U.S. remains the strongest capital market in the world. It didn’t increase by enough to offset the tax cuts, and part of Reagan’s economic legacy was an increased Federal deficit.

Money can be spent on taxes, consumption, savings, and investment. (Paying down debt is a form of savings.) Money that goes to one purpose cannot be used for another.  Money that the government takes in from taxes can also be used for consumption, savings, or investment. War and Medicare are examples of government consumption spending (which may be on behalf of citizens). Paying down debt is a form of savings, and goodness knows that the government at all levels has plenty of debt to pay off. The government invests when it spends money on bridges, schools, airports, and the like. For accounting purposes, this is handled like consumption. (more…)

Of Teabags and Taxes

a0708954-1a61-4122-ba6d-4299270ba27b1On Tax Day, I went to the Chicago Loop post office – the one with the Calder where Ferris Bueller twists and shouts – to mail in my forms. An accountant does them, but he won’t hook his computer to the Internet because of privacy concerns, so they can’t be filed electronically. I had to fight my way through the Chicago Tea Party, full of people who would be mortified if they knew what teabagging was.

The postal service receives very little taxpayer money. In fiscal year 2008, it received $102.1 million in taxpayer funds, mostly reimbursement for free mail services provided to blind people, folks in military service, and U.S. voters overseas. It received $74.2 billion from other postal customers. What the postal service does have is a congressional monopoly on mail services. Legally, no one but the postal service can use your mail box. (If you’ve ever done any political canvassing, you were probably warned up and down not to put any leaflets in mailboxes.)

Of course, I was annoyed about this monopoly when I stood in line, because it would have been much easier to use FedEx. I have an account with them – a cinch to set up – and all I’d have to do would be print out the form from my very own computer, then drop it off at any of the fifty million FedEx boxes in the Loop. There seem to be more of them than mail boxes, as many mail boxes were removed because of fears of the Unabomber and terrorism and the like. However, you can’t FedEx tax forms because of the post office’s monopoly on post office boxes.

I’m not entirely sure what the teabaggers were protesting about, but there are a lot of problems with taxes. I’m not opposed to paying taxes, because there are things I want that only the government can provide, like national defense, an interstate highway system, and universal education. But why are tax forms so complicated? I have an MBA from the University of Chicago with concentrations in finance and accounting, but I pay someone else to do my taxes.

If you buy your own health insurance, you don’t get a tax deduction for it, unless you are self-employed, and then you do. If you have medical expenses, you can only deduct them if they exceed 7.5% of your adjusted gross income, unless your employer offers a flexible spending account or you have a medical savings account. You can’t deduct certain types of securities trading losses unless you qualify as a trader for IRS purposes, in which case you can. Does any of this make any sense at all?

However, simplified taxes are a long way off. Tax preparation is a huge industry. target=new>Intuit, the maker of TurboTax, sells about a billion dollars worth of tax software a year. H& R Block generates about $3 billion in revenues from tax services. Throw in all the tax preparation books sold, the independent accountants, the lawyers who represent people in tax court, and the extra postage paid by all of us standing in line at the post office mailing in our tax forms, and you have a hefty business.

Here’s the other problem: no matter how you change the tax system, someone is going to be a loser, and the loser will complain – unless you cut taxes and increase spending, and then everyone is happy until reality sets in. Taxes have to go up; it’s much more responsible to tax and spend than to cut taxes and spend. (No matter what many teabag types fervently believe, there is no GOP money machine turns decreased revenue into increased revenue.)

We have a system that everyone hates, but we have no consensus on how to fix it. Even my accountant complains; he loves the revenue he gets from preparing taxes, but he believes that government wastes every dime it gets. I believe government wastes only half of every dime it gets (more for Cook County, less for Social Security), but I think we’re a long way from any real change other than paying more money. Good think I like my accountant.

Confab-ulous? Obama vs. McCain: Round 1

Ted Asregadoo

This is the first time Barack Obama and John McCain have faced each other as competitors rather than Senate colleagues, and it’s clear that the chumminess of that institution cast a long shadow over the early part of the debate. Both were cordial, often agreed with one another, and had trouble defining themselves as candidates with different ideas on addressing the problems of the country.

It wasn’t until moderator Jim Lehrer pushed the two of them to articulate their differences that we saw that chumminess start to evaporate.  One of the overarching themes of Friday night’s debate was about resources and how best to allocate them. Money, jobs, energy, and even troops were the resources in question, and the politics centered on how much for whom. Tax breaks for oil companies and businesses, or tax breaks for families making $250,000 or less? Which was going to do its economic magic and help the economy recover? Trickle down or bottom up?

On energy, the two candidates were pretty much on the same page, and only differed on details of how much and when. What shocks me the most is Obama’s support for nuclear energy. Why, if he’s so keen on preventing nuclear “suitcase bombs” from going off in American cities, does he not see the danger of nuclear reactors as terrorist targets? Also, almost no attention is being paid to the huge costs to taxpayers in setting up nuclear reactors, and once they are set up, how do you deal with the nuclear waste? Yucca Mountain can’t hold it all. His pragmatism on oil drilling is understandable, but it overshadows his commitment to alternative energy — which, when McCain chimes in, makes it sound like both men don’t mean it.

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Dw. Dunphy On… Get Me Some Money Too

In response to the nearly self-fulfilling prophecy of a recession, President Bush recently announced proposals to offer tax rebates in the ballpark of $150 billion. He also proposed a kick-in for industry to help support production, all in the name of boosting a rapidly sagging economy. There’s just one problem with his intentions — they won’t work.

The biggest variable is the price of oil. It depresses the value of the dollar worldwide, it crushes the budgets of millions of American households, and there isn’t a damn thing we can do about it. With the tables shifting in world economics and China booming with industry, if we had the ability right now to reject Middle Eastern oil outright, the effect on the price per barrel is presumed by most analysts to be negligible.

This, of course, is the pebble at the center of the massive snowball. Those American households I mentioned are dealing with a lot — subprime mortgages, credit crises, foreclosure, unemployment, and the winter cold that doesn’t care about the price of oil or the size of your home or how far you have to drive to an underpaying job. (more…)